How Lowe's Became A Home Improvement Giant

How Lowe's Became A Home Improvement Giant

The second-largest home improvement chain in the US, Lowe’s has had a remarkable journey to reach the incredible heights it now sits comfortably at. Let’s discover how it got here!

The ninth-largest retailer in the US and the second-largest one in the home improvement industry, Lowe’s is arguably one of the biggest companies in North America.

Its presence in 49 US States, Canada, and India and continually rising numbers show how large the chain is and how it is still continuously growing.

Here’s a glimpse of the remarkable numbers from the year 2020:

Lowe’s wasn’t always at this level. From the first Lowe’s store opening in 1921 to what it is today, the company has a had journey to be explored.

We’ll dive in to do just that now!

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The Beginnings of Lowe’s

In no way is Lowe’s a new name to the American customer. In fact, its journey goes back over a hundred years.

Lowe’s North Wilkesboro Hardware

So, the story of Lowe’s begins with Lucius Smith Lowe. In 1921, in his small town of North Wilkesboro, North Carolina, L.S Lowe opened a hardware store, which along with building materials, sold dry goods, sewing notions, horse tack, produce, and groceries.

He gave the store a simple name: “Lowe’s North Wilkesboro Hardware”. Little did Mr. Lowe know that his store wasn’t just going to be a local, ordinary hardware store in North Wilkesboro. The name Lowe – his name – was going to be known around the country.

From 1921 to 1940, he worked hard at the store, catering to locals’ hardware needs until his passing. Then, the store was passed on to his daughter, Ruth, who did not retain ownership for long and sold it to her brother, Jim.

The Family-Run Business

Jim Lowe had only just taken charge of operations at the store when he was called up by the military to serve on the frontlines in WWII. He was accompanied by his brother-in-law, Carl Buchan, Ruth’s husband. Meanwhile, the women of the household, Ruth, and her mother kept the store running.

For three years, things continued like this. Then, Buchan who was injured during the war, returned home after being discharged from service. He not only joined the business to help out, but he also bought 50% of its shares to become Lowe’s partner.

From there on, he took it upon himself to transform the store. He was successful in selling out much of the existing stock and took the opportunity to reorganize the store and focus it towards becoming a whole-seller of hardware and buildings supplies.

The Lowe’s Brand Is Born

In 1946, Jim returned from the war and joined Buchan in taking the business forward. Expecting there to be a post-war construction boom, the store’s renewed focus on hardware was a smart move.

Together, the two were doing reasonably well and by 1949, they had already opened their second Lowe store in Sparta, N.C. With the profits they generated, they also branched out, investing in an automobile dealership and a cattle farm.

lowes-storefront-1949Source

However, instead of simultaneously focusing on multiple businesses, in 1952, Lowe and Buchan decided to part ways and take over a separate side of operations. Lowe became the sole owner of the newly set up businesses while the hardware stores went to Buchan.

Interestingly, both individuals continued their company with the original Lowe’s name that had they associated their initial success with. For Jim Lowe, it was a continuation of his family’s legacy, while for Buchan, with his eyes set on growing the stores into a national chain, it gave him a solid foundation. For instance, retaining the Lowe name helped Buchan retain the “Lowe's low prices" slogan.

Quick to grasp the opportunity, Buchan had already opened the third Lowe’s store in Asheville within three months of the new setup. He also didn’t waste any time in registering the company officially and sticking with the original title” “Lowe's North Wilkesboro Hardware, Inc.”

buchan-speakingSource

That day marked the beginning of the Lowe’s company that we know today!

Steady Growth

Buchan vigorously pursued the expansion of Lowe’s chain and the construction boom of the post-war helped his ambitions considerably.

Moreover, Buchan also had another advantage in the market which allowed him to stay one step ahead of his competitors. As the demand for his products was high, he needed to quickly restore his stocks. This meant that instead of going to a wholesaler to purchase the goods, he would often have to purchase them directly from the freight train that was carrying them into town. Incidentally, the railway siding was right by his store.

Thus, killing two birds with one stone, Lowe’s received its products at a cheaper cost and much faster rate. So, it could charge its customers lower and maintain a very profitable turnover.

The company achieved multifold growth in its revenue, turning sales of $4.1 million in 1952 to $27 million by 1959. Furthermore, the growing business now consisted of a team of 344 associated running 15 stores across the country by the end of the decade.

Key Takeaway 1: Set Bigger Goals For Your Business

When L.S Lowe opened his store, his ambitions were not of turning it into a state-wide or nationwide chain. He only founded a store to serve the town of North Wilkesboro. Thus, unsurprisingly, 19 years later, when the next generation took over the business, it was still just one store.

On the other hand, from day one, when Carl Buchan joined he saw the bigger picture in focusing specifically on hardware supplies, capitalizing on the post-war construction boom, and most importantly, growing the Lowe’s brand.

He was so motivated in making Lowe’s a hardware brand that he traded his ownership in the automobile and farm business to become the sole owner of the store.

Within a few years, the result of his ambitions was clear, as Lowe’s grew from one store to a thriving chain of 15 stores.

A Major Name In The Home-Building Market

Carl Buchan had led the company strongly and enabled it to become a recognizable chain. However, there was still a lot of potential for the brand to grow and enter new markets.

Lowe’s Goes Public

In 1960, Buchan passed away created a gap in the company’s leadership. However, that was duly and promptly filled by an executive team Leonard Herring, John Walker, Pete Kulynych, Joe Reinhardt, and Bob Strickland. Under them, Lowe’s underwent significant changes setting the brand on its path of becoming a truly large national chain.

Firstly, they introduced a profit-sharing plan through which employees were part-owners of the business and thus, were entitled to a share of its earnings. Secondly, in 1961, they renamed the company Lowe's Companies, Inc. and took it public. On the first day of trading, around 400,000 shares were sold at $12.25 per share.

lowes-stock-ipoSource

With motivated employees and much more financing than Lowe’s had received ever before, the chain was all set to become a force to be reckoned with.

Changing Market Trends

Initially, as a chain of just a few stores, Lowe’s catered to construction companies but its main customers were of the DIY category.

Gradually, with the growing construction industry, it’s focus shifted to contractors. This was also the main driver of the company’s growth in the early 1960s. By 1964, Lowe’s was serving one million customers annually and by the late 1960s, its sales were already hitting the $100 million mark.

However, now the market began to change. There was a rising interest in DIY construction projects as hiring professional contractors became increasingly expensive for the common individual. This directly meant that Lowe’s primary customers i.e. contractors experienced a slowdown in their businesses. Consequently, the company saw itself vulnerable to changing market trends.

Still, the company managed to maintain steady growth taking its $170 million revenue in 1971 to $900 million in 1979. Meanwhile, it had gone from 50 stores to over 200 stores across the country. Interestingly, even though the company had expanded considerably with over 50 outlets, its stores’ layout had remained fairly consistent. They were located near railroads, had a lumberyard out back, and a small retail floor with limited stock upfront. 

This growth was largely on the back of the company’s financing program. It enabled local builders to acquire loans and work with the Federal Housing Authority (FHA) while it helped larger construction companies acquire house-building contracts from the government.

Changing With The Market Trends

During the 1970s, Lowe’s had been able to ride above the slowdown in house building projects through its financing and facilitation programs.

However, as the decade was coming to end, new building projects had nearly come to a standstill and the chain was starting to experience its effects in full swing. In 1980, its net income fell by 24%. It was high time that the company adopted a different approach to maintaining its operations.

At this point, Lowe’s realized that the trend of DIYs which was becoming so popular in the 1970s was still going strong despite the volatility and slumps in the home-building market. Hence, the chain had to repurpose itself to capitalize on the opportunity in this market; in many ways, it was also going back to its roots but on a much larger scale.

The RSVP Approach To Attracting New Customers

At the helm of affairs and ready to drive Lowe’s through this transformation was Harvard Business graduate, Robert Strickland. He had risen through the ranks to become chairman of the board in 1978. Along with then company President Leonard Herring, he initiated a comprehensive marketing strategy based on RSVP (retail sales, volume, and profit) to directly target customers of DIY products.

One of the first moves was remodeling the layout of Lowe’s store. The structure was simplistic and small and this worked well for their business. For businesses, their focus was on buying bulk quantities of affordable supplies for their projects – how the items were presented did little to influence their decisions. On the contrary, the purchase decisions of customers are greatly swayed by the store layout, ambiance, extra offerings, etc. and this was what Lowe’s intended to work on.

The company hired consultants to remodel the layout in a way that it resembled a supermarket. Then, instead of keeping its core products upfront, Lowe’s placed seasonal items like lawnmowers to catch the customer’s attention and bring them inside the store. From there, the flow of the store was such that they would be drawn to the interior décor items departments and gradually move across the store towards hardware items displayed at the very back.

Another strategy of the redesign was to replace lettered signs that identified isles with poster-sized photographs of how a consumer’s home would look like if they had the items displayed in their homes. This move was intended to evoke the customer’s emotions and lure them into making a purchase.

Hence, the strategy was to grab the attention through basic products and then, through the store experience, entice them to buy products they did not originally intend to.

Overall, the RSVP strategy was largely successful as after enlisting on the New York Stock Exchange in late 1979, the company announced itself on the London Stock Exchange in 1981. Moreover, by 1982, Lowe’s recorded billion-dollar sales for the first time with profits reaching $25 million. In the following year, the number was even higher with $1.43 billion in sales. Even more significantly, it was the first time revenue generated from B2C markets was higher than B2B customers for Lowe’s.

Key Takeaway 2: Understand The Market To Ensure Sustainable Business

The post-war boom in the construction industry was one of the most influential factors in Lowe’s growth and for several years, the company banked on the same industry to purchase its supplies and ensure its smooth trajectory upwards.

However, when new construction projects experienced a slump, Lowe’s realized that reliance on the sector had left it vulnerable to volatility. Thus, the company identified DIY consumers as a growing market and decided to gradually shift its operations to cater to this sector.

It invested its resources in understanding these customers and the RSVP strategy was all targeting areas that would persuade them to visit Lowe’s stores.

Resultantly, instead of going down with the construction market, Lowe’s not only stayed up, but rose higher by keeping up with changing market.

The Era Of Big Boxes

The late 1970s and early 1980s were marked by Lowe’s successfully establishing itself in the customer home improvement market. However, instead of the next few years being smooth sailing, a new set of challenges arose which demanded that the company again find a way to keep up and persevere.

The Launch of Big Boxes

Home Depot had only opened its doors in 1978 but as early as the 1980s, it was making waves all across the country. Not only had it spurred a revolution in the home improvement market but it had also impacted the whole retail industry.

But how did it do it? It was all due to its “big-box” style warehouses.

Its superstores would be 105,000 square feet in size with the idea of offering customers everything under one roof while minimizing costs for Home Depot via economies of scale. This model was hugely successful in no time and it slingshotted the new chain ahead of its competitors, including Lowe’s.

home-depot-storefront-1970sSource

Lowe’s, at this point, was a thriving chain of over 300 stores, yet the average size of its stores was no more than 20,000 square feet. To compete with Home Depot, it had to expand its stores. But of course, overhauling 300 stores overnight was not the solution – a gradual approach had to be taken.

Lowe’s Makes The Shift To Big Boxes

In 1988, Lowe’s experimented with the big box idea by opening up a couple of stores of around 60,000 square feet in Knoxville, Boone, and North Chattanooga. Simultaneously, it expanded on its core line of products i.e. hardware supplies, plumbing tools, paint, home décor equipment, etc. while phasing out additional products like exercise equipment and bathroom products.

Giving a few years to these changes, the management fully initiated the plan to move towards warehouse-style stores in 1991. Lowe’s allocated over $70 million to finance the whole restructuring project that would span over four years.

From closing or relocating several of its branches to remodeling many existing ones, the transformation was a rigorous process. The locations that were maintained were large by Lowe’s standards – around the 45,000 square feet mark. These were brought to 85,000 to 115,000 square feet – the largest of these stores were planned in the biggest markets, such as Greensboro. The stores also featured garden centers - some as large as 30,000 square feet.

Naturally, during the first two years of these plans, there was an intense focus on restructuring rather than the penetration of new markets. However, Lowe’s still managed to Maryland, Indiana, and Illinois for the first time.

The main growth during this period wasn’t in the number of stores. It was in the size of the stores. At the start of 1991, the total area covered by Lowe’s store was 8.02 million square feet. By 1993, the number was up to 14.17 million square feet. Moreover, the average size of stores was also up to 45,000 square feet.

Back To Business

From 1994 onwards, the company brought back its attention to opening new stores and setting its feet into untapped markets. By 1995, it had 365 stores under the Lowe’s chain and in the next few years, it added multiple stores in New York and Texas, taking the total tally to 400 by 1996. Also, these stores averaged more than 75000 square feet in sizes with more than 70% of them following the big box layout

The result was a stunning rise in sales in profits. At the beginning of the restructuring, net sales were $3.1 billion and by 1996, the company was generating $8.6 billion in revenue of which $292.2 million of net profits were earned.

With an aim to reach 600 stores at the turn of the century, Lowe’s added a further 42 stores in 1997 and started to explore urban and metropolitan markets. Despite an established Home Depot customer base in these markets, Lowe’s, with its revamped structure, was able to cement its place and tap into the opportunities.

Key Takeaway 3: Learn From Competitors

While on the face of it, most firms do not prefer competition in the industry, they have to find a way to persevere if they cannot find a way to drive out the competition.

In the case of Lowe’s, Home Depot took the retail market by storm with its big-box concept. So much so, that it overtook all its rivals in no time. Lowe’s did not find it sufficient to stay in its own bubble and let its competitor take over the market.

Instead, realizing that Home Depot’s layout was going to stay the big thing in coming years, it gradually decided to make the shift to warehouse-style stores too. Although for the revamp considerable time and resources were invested, the move proved fruitful and Lowe’s began returning more profits than it ever had before.

Hence, by taking the progressive approach and learning from its competition, Lowe’s showed that it could adapt and thrive regardless of the circumstances.

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Accelerating Into One Of The Top Retailer Chains

With the success of its big-box restructuring and recent penetration of new markets, Lowe’s was intensely focused on reaching the six hundred market and entering the new millennium as one of the top brands in the country.

Lowe’s Goes Big

The 100,000 square foot stores were big but Lowe’s expansion plans were bigger. The company developed six state-of-the-art distribution centers, all one million square feet in size, spread across the US. Further, the company pumped in $1.5 billion to build 100+ stores and establish its dominance in the western part of the country.

That was just the beginning of the westward expansion. In 1999, Lowe’s completed a $1.34 billion takeover (in stock swap) of Eagle Hardware & Garden, Inc. With its headquarters in Washington, Eagle had more than 38 big box stores located in 10 western states and collectively generated over a billion dollars annually. All these stores were rebranded as part of Lowe’s chain.

Thus, by the end of 1999, Lowe's was very close to achieving its goal with 550 stores already set up. It had also become the 15th largest retailer in the US by earning revenues of $15.45 billion.

Upping The Marketing Game

In 2000, the chain had crossed the 600 mark comfortably by adding 75 more stores. Now, it set its eyes on enhancing its marketing strategy and gaining ground on its competitor, Home Depot.

Firstly, it revamped its website, Lowes.com, which was originally launched in 1995, into a fully functional e-commerce website. Next, it started running its first television advertisement campaign with the slogan "Improving Home Improvement." The ad focused on marketing Lowe’s a better-organized store with better ambiance, lighting, cleanliness, etc. Without naming but implying almost directly, the campaign was a dig at Home Depot.

lowes-logoSource

It was also targeted to attract Lowe’s female customers who the company had identified as its most revenue-generating demographic. This was mainly because its analysts had pinpointed women to be the major decision-makers when it comes to home improvement.

Lowe’s Goes North

After successful expansion in the West and an impactful nationwide marketing campaign, Lowe’s turned its focus to the Northeastern market. It announced $1.3 billion plan to open 75 stores across the Northeast over the next 5 years. By 2002, it made additional plans to set up 60 stores in the New York and New Jersey area alone.

In the following year, the company came up with an innovative prototype format idea. Stores measuring 94,000 square feet were to be opened in smaller, rural markets while the larger markets would house 116,000-square-foot stores.

These measures led the company to reach the 1,000 store mark by the end of 2004. The growth the company had seen ever since it had moved to the Big Box was phenomenal. Revenue and profits in 1996 were $9.06 billion and $310 million respectively. In 2004, those numbers had reached $36.46 billion and $2.18 billion.

By now, Lowe’s was the 11th largest retailer in the country.

Key Takeaway 4: There is Always Potential to Grow

Lowe’s goal while entering the 2000s was to have opened 600 stores across the US. However, once it got there, the chain didn’t find any reason to stop. Instead, it took an even more proactive approach and within 4 years took the tally to 1000.

Along with adding new stores and acquiring large chains, the company realized that investing in targeted marketing – identifying its core customer demographic and highlighting its edge over its competitors – could accelerate its growth.

Thus, the early 2000s were marked by exponential growth for the company as it found new and innovative ways to expand its customer base.

Lowe’s Becomes An International Chain

As Lowe’s had shown almost every year in the recent past, the company was not going to slow down its growth trajectory no matter the scale it reached. Thus, the same pattern continued from 2005.

49 States Strong

Just as the company had reached the 1000 store count, it had already begun plans to reach the next thousand. The immediate move was opening 150 new stores in 2005 which also included its first stores in New Hampshire – the 49th state to welcome a Lowe’s store. The plan was to add the same number of stores consistently over the next few years.

Meanwhile, the company also looked to boost its revenues by focusing on three other core areas:

  1. Special Orders
  2. Installation Services
  3. Commercial Customers 

That year saw Lowe’s accumulating revenues of $43.24 billion and earning a record profit of $2.77 billion.

Stepping Outside US Borders

Although Lowe’s business was continuously on the path upwards, speculations that the construction industry was once again slowing down, created an air of uncertainty for the home improvement market. Thus, in 2005, Lowe’s also announced that it was going to establish its first stores overseas in Canada.

lowes-canada-logoSource

Subsequently, in 2007, it set up three stores in the Canadian cities of Hamilton, Brantford, and Brampton. Within a few months, it added three more stores to the tally. The next foreign market the company stepped into was Mexico. By 2010, the company ran 2,355 stores in three countries.

The Mexico venture, however, did not prove very successful and the company pulled out after a few years. On the other hand, there are more than 60 Lowe’s stores in Canada to this day. That is exclusive of the near 180 stores of RONA, a well-established home improvement store chain in Canada, which Lowe’s purchased in 2016.

Lowe’s expansion wasn’t just limited to its neighbors. It entered one of the world’s biggest markets, India, in 2015, by establishing its offices in Bangalore. Ever since then, it has cemented its position in the country, employing more than 2500 employees, as of 2020.

The COVID Impact

When the COVID-19 was declared a pandemic in early 2020, the dynamics of many industries were completely changed. The immediate impact was the people were not just working from home - they were home 24/7. Thus, for many people, this became the perfect opportunity to tick off the home improvement tasks that had been left pending.

Naturally with the rise in DIY renovation and remodeling projects, the demand for Lowe’s products shot up with sales improving by over 30% from the previous year. Much of this increase could be attributed to online sales which more than doubled over the period.

In the first half of 2021, the upwards trend grew due to the ‘nesting effect’ where people felt more comfortable working from home and had adjusted their lifestyles accordingly.

However, as a majority of the population became vaccinated, the trend slowed down, with the executives of Lowe’s anticipating sales growth to be even slower in 2022. This could always be expected as sooner or later, things had to return to normal.

Still, the growth of online sales is one of the major pluses of the lockdown periods, and Lowe’s will benefit from it in the coming years.

Key Takeaway 5: Explore Diverse Markets To Minimize Risks

At the start of the 21st century, Lowe’s business was expanding rapidly but with the slowdown of the construction industry expected, the firm had to find a way to minimize the impact.

Thus, it stepped into the Canadian and Mexican markets, followed soon by the Indian Market. This meant that if there was volatility or uncertainty in the local US market, it could still rely on its foreign businesses.

Similarly, during the COVID-19 outbreak, Lowe’s had a well-set e-commerce website which became the driving force for its growth when people weren’t going to visit stores physically.

Hence, if a company had multiple channels of generating revenue – be it via geographic locations or virtual platforms – it can bolster growth even when one channel experiences a slowdown just like Lowe’s did.

Summary & Strategic Takeaways

From one store in North Wilkesboro to becoming the second-largest retailer of home improvement goods in the US, Lowe’s has come a long way.

It encountered several challenging situations as well as many scenarios where it had an automatic edge. In both cases, the company rose to the occasion, and scaled one step after the other to reach the rank it has today!

Growth By Numbers

 

2020

2006

Revenue

$89.6 Billion

$46.9 Billion

Number of Employees

220,000 + 120,000

210,000

Number of Stores

1,974

1,385

Adjusted Diluted Earnings Per Share

$8.9

$2

Share Price (Adjusted Close)

$158.3

$24.1

Strategic Takeaways

Lowe’s has been in business for over a century and during that time, it has implemented several vital strategies that have enabled it to sustain its operations and scale exponentially.

Here are some of the key takeaways from those strategies:

1. Always Have The Thirst To Grow

One of the most important takeaways from Lowe’s growth over the years has been the company’s drive to never be satisfied with its current success and always try to find more ways to excel.

From Carl Buchan turning one small store into a chain of 15 stores to the company expanding overseas, Lowe’s always set the bar high, adapted its ways, and innovated and experimented.

Thus, not only did the company manage to grow beyond its own potential till now but the same can also be expected in the years to come.

2. Understand What Grabs The Customer’s Attention

For much of its initial journey, Lowe’s was catering mostly to B2B markets thus it did not have to focus too much on how it presented its products at its stores. However, once it made the shift to directly targeting customers, the chain invested heavily in how it could entice them to enter its stores and then, develop an experience that lured them into making a purchase.

Moreover, its move to big box stores stemmed from the same customer-centric approach and then, later on, with its marketing campaigns it further showed that it was on the right track of identifying what its customers expect.

Hence, despite facing stiff competition in the home improvement industry, Lowe’s has always managed to stay ahead by understanding its customers better.

3. Pick Up Tricks From Customers

There are several ways that a firm can respond to its competitors in the markets. One is by offering something unique – something that the competitor cannot offer. Another is to pick up strategies from the competitor and implement them for its own benefit.

Lowe’s did the latter by following Home Depot’s model of big box stores. At the time, Lowe’s was doing fairly well but Home Depot had caused quite a stir in the market. Realizing that its competitor was doing something right, Lowe’s knew the right way to go was to keep up instead of staying on its own path.

As a result, even though Home Depot is the largest home improvement chain in the country, it is very closely followed by Lowe’s – as both firms continue to grow and push each other to improve their offerings.

4. Take A Calculated Approach Towards Expansion

Lowe’s has periodically set its growth goals, for instance, achieving 600 stores and then, 2000 stores. However, this did not mean that the company pounced on every opportunity and started spending its resources with no direction.

Instead, it identified markets to penetrate first and then, one by one established its stronghold. For instance, after crossing 600 stores it marked the Western US states to expand into. Accordingly, it set up huge distribution centers, opened hundreds of new stores, and acquired the Eagle chain. Once it had made its mark in the West, it moved towards asserting its dominance in the Northeastern states.

Thus, by focusing on one area at a time, it could keep track of its growth and sustainably and quickly achieve its growth goals.

5. Minimize Risks With Presence in Multiple Markets

In recent years, Lowe’s focus has been on venturing outside the US and tapping into the potential in foreign markets.

Besides Mexico, its other endeavors in Canada and India, have proved largely successful. Not only has this provided the company with new opportunities to grow its business but it also, to some extent, reduces Lowe’s dependency on the US market.

Similarly, the chain also improved its online reach, which during the pandemic proved to be one of the key drivers of its success. Thus, while many businesses were struggling to stay afloat, Lowe’s was riding high.

Applying the right strategies at the right time, and more often than not, applying multiple right strategies simultaneously can be termed as the recipe for the success of Lowe’s!

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